Outdoor financials: VF's outdoor division doubles revenue in Q2, plus K2, Deckers, Johnson Outdoors, Quiksilver/Rossignol, Forzani, Sportsman's Guide

VF's outdoor division doubles revenue in Q2, K2 acquisitions lower Q2 income, Teva downturn affects Deckers' Q2, Dolphin Limited rallies support from ISS in dealing with Johnson Outdoors, Quiksilver closes in on Rossignol purchase, Forzani gets OK to buy common stock, and Sportsman's Guide ups guidance.

VF's outdoor division doubles revenue in Q2
VF Corp. (NYSE: VFC) credited strong sales in its outdoor and sportswear divisions with driving higher gross margins in its second quarter. Revenue in the outdoor business alone more than doubled to $296.7 million and operating income climbed 97 percent.

Second-quarter sales for VF rose 13 percent to $1.44 billion from $1.27 billion in the prior year's second quarter. Net income increased 11 percent to $100.0 million from $90.1 million, with earnings per share rising 10 percent to $0.88 from $0.80. Analysts, on average, had expected a profit of 74 cents per share.

Second-quarter earnings included a net benefit of $.07 per share from special items. The acquisitions of the Vans, Napapijri, Kipling, Reef and Holoubek businesses added $156 million to sales and $.09 to earnings per share in the 2005 quarter, the company said.

"Earnings rose more than we anticipated during the quarter, due to particularly robust sales in our Outdoor and Sportswear coalitions, which in turn are driving higher gross margins," said Mackey McDonald, chairman and CEO of VF, said in a statement. "Two noteworthy examples in the quarter were our Vans brand, where we are benefiting from very strong product launches and the success of a new retail merchandising format, and our Nautica brand, where we experienced a double-digit sales gain and a big improvement in profitability."

VF said sales for its outdoor coalition doubled in the quarter to $297 million from $146 million, with the acquisitions of the Vans, Kipling, Reef and Napapijri brands contributing $138 million of the increase. Vans and Kipling reportedly had exceptionally strong results and continue to outpace VF's expectations, it said. Organic sales growth in the quarter was 9 percent, driven by strong growth in The North Face and JanSport brands. Operating income rose 97 percent, with a slight decline in margins reflecting the impact of recent acquisitions.

Sales of its sportswear businesses, which include Nautica and Kipling, increased 22 percent in the quarter, to $127 million from $105 million. Operating income increased sharply to $19 million, or 15.1 percent of sales, compared to $1 million in last year's second quarter, it said. Both sales and operating income in the 2004 quarter included the negative impact of an acquisition-related adjustment of $7 million.

VF said it now expects that earnings will rise about 10 percent in 2005 to approximately $4.65 per share, reflecting both continued strong performance across most of our businesses during the second half and the special items reported in the most recent quarter.

Additionally, VF's board of directors declared a regular quarterly cash dividend of $0.27 per share, payable on Sept. 19, 2005, to shareholders of record as of the close of business on Sept. 9, 2005.

The company's stock fell 34 cents to close at $61.18 on the New York Stock Exchange, after hitting a fresh 52-week high of $61.61 earlier in the session. The stock is up 10.3 percent so far this year.

K2 acquisitions lower Q2 income
K2 Inc. (NYSE: KTO) had lower second-quarter sales partly weighed down by its Volkl, Marker and Marmot product lines. Net income was $1.5 million, or $0.03 per share, down from $6.2 million, or $0.16 per share last year for the second quarter of 2004.

The company said its pro forma adjusted earnings per share was $0.05. Wall Street analysts on average had forecast earnings of $0.04 per share.

The Volkl, Marker and Marmot product lines have higher levels of fixed expenses compared to K2's other business lines and tend to have slow sales in the first and second quarters on a seasonal basis, the company said.

Net sales for the second quarter were $301.4 million, an increase of 20 percent from $251.0 million in the prior year, as a result of 7.1 percent in organic growth and the balance from acquisitions completed after the second quarter of 2004. Operating income was $8.3 million as compared to $12.4 million for the 2004 comparable period.

"We had a solid quarter with over 7 percent organic growth driven by strong results in marine and outdoor, team sports, and apparel and footwear," Richard Heckmann, chairman and CEO of K2, said in a statement. "The only category that experienced softness was action sports, due principally to the downturn in the paintball market. We continued our margin expansion trends, with the gross margin moving up to 33 percent versus 31 percent due largely to an improved merchandising mix in team sports and apparel and footwear."

In the marine and outdoor segment, Shakespeare fishing tackle and monofilament, and Stearns marine and outdoor products, generated net sales of $130.4 million in the second quarter, an increase of 21 percent from 2004.

In a seasonally slow quarter, net sales of skis, snowboards, in-line skates, bikes, snowshoes and paintball products in the action sports segment totaled $65.1 million in the second quarter of 2005 as compared to $69.2 million in 2004. The company said the overall sales decline was due to lower sales of paintball products and snowboards and bikes, partially offset by net sales from the acquisition of Volkl and Marker in the 2004 third quarter. The lower profitability in the second quarter of 2005 as compared to 2004 is attributable to the acquisitions of Volkl and Marker in the third quarter of 2004, because they are seasonally slow from a sales standpoint in the first and second quarters.

In the apparel and footwear segment, Earth Products, Ex Officio and Marmot had net sales of $37.6 million in the second quarter of 2005, an increase of 209 percent over the 2004 period. The increase was due to 66 percent growth in technical skate footwear and apparel and the acquisitions of Ex Officio in May 2004 and Marmot in June 2004.

Looking ahead, K2 stood by its forecast for fiscal 2005 GAAP earnings per share of $0.77 to $0.81 and for pro forma adjusted earnings per share of $0.87 to $0.91. Analysts on average were expecting pro forma earnings of $0.89 per share for the year.

Teva downturn affects Deckers' Q2
Deckers Outdoor Corp. (Nasdaq: DECK) took several hits in the second quarter as lingering cold weather negatively impacted Teva's domestic business and weakness in certain international markets affected its overseas business.

For the second quarter, net sales were down slightly $40.3 million from 2004's $40.5 million. Net earnings for the quarter were $2.7 million, compared to net earnings of $5.1 million in the same period last year. Diluted earnings per share were $0.21 compared to diluted earnings per share of $0.43 in the second quarter of 2004.

Including sales from both the wholesale divisions and the Internet and catalog retailing business, Teva sales for the second quarter decreased to $24.8 million from $27.1 million in the same period a year ago, while Ugg sales increased to $13.3 million compared to $11.7 million for the second quarter last year. Simple sales increased to $2.2 million compared to $1.8 million for the second quarter last year. Sales for the Internet and catalog retailing business aggregated approximately $3.5 million for the second quarter of 2005, compared to $4.9 million for the second quarter of 2004.

Gross margin for the quarter was 39.6 percent compared to 46.6 percent in the second quarter of last year, primarily due to an increased impact of closeout sales and inventory write-downs during the quarter, it said. In addition, the decrease in the high margin Internet and catalog retail sales compared to the second quarter of last year also contributed to the lower gross margin.

Deckers reaffirmed the higher end of its previous guidance for net sales and earnings for fiscal 2005. For the year, Deckers now expects net sales between $251 million to $258 million and diluted earnings per share between $2.35 to $2.43. For the third quarter, Deckers expects net sales of $68 million to $71 million and diluted earnings per share of $0.58 to $0.61.

Dolphin Limited rallies support from ISS in dealing with Johnson Outdoors

Institutional Shareholder Services is joining Dolphin Limited Partnership I, L.P., and recommending that Johnson Outdoors (Nasdaq: JOUT) shareholders vote in favor of Dolphin's proxy proposal. The proxy requests that Johnson's board provides for cumulative voting for the Class A common stock in accordance with Wisconsin law.

ISS said in its report: "ISS believes that cumulative voting is an important tool in the protection of shareholders' rights, but recognizes that the need for cumulative voting can be offset if a company has other safeguards in place to protect shareholders' rights and to promote management accountability. Therefore, proposals to provide for cumulative voting are evaluated based on an assessment of a company's other corporate governance provisions."

ISS also noted that the Johnson Family "effectively controls the vote for all directors." ISS said it has concluded that "in this case, the company fails to meet all of [ISS' specified] governance criteria. Specifically, the board of directors is not majority-independent and the company maintains a dual-class capital structure. Accordingly, the proposal warrants shareholder support."

ISS noted Dolphin's recent "efforts to communicate with the company to determine whether the company's board is effectively focused on generating shareholder value," and stated that it "feels that the board has an obligation to provide a communication structure which facilitates communication between shareholders and the board ... ISS will monitor the action of the board going forward and determine whether or not the company has made reasonable efforts to promote discussion with company shareholders."

Quiksilver closes in on Rossignol purchase

Quiksilver (NYSE: ZQK) said it has successfully completed its tender offer for the outstanding share capital of Skis Rossignol S.A. (EN Paris: SR). Quiksilver acquired approximately 6.0 million shares during the offering period for Euro 19.00 per share. The transaction is expected to close on July 26 and Quiksilver will directly or indirectly own approximately 94 percent of the issued share capital of Rossignol with just over 95 percent of the voting rights.

Quiksilver also announced that the tender offer will be reopened on July 25 for an additional 15 days to address the remaining outstanding shares. In the event the company acquires an additional 1 percent of the issued share capital, it is expected to proceed to the mandatory squeeze out to obtain the remaining issued shares.

Quiksilver anticipates completing today its private placement of ten-year senior notes to facilitate financing the Rossignol acquisition. While the offering was initially planned to raise $350 million, it said strong demand enabled the company to upsize the over-subscribed offering to $400 million at a coupon rate of 6.875 percent.

Forzani gets OK to buy common stock
The Forzani Group Ltd. (TSX: FGL), Canada's largest retailer of sporting goods, said the Toronto Stock Exchange has accepted its application to purchase its Class A common shares. All purchases will be made through the facilities of the TSX.

As of June 30, there were 32,888,223 common shares issued and outstanding. During the past 12 months, Forzani has purchased 135,100 common shares at an average price of $11.18. Forzani said the number of common shares which may be purchased from July 26, 2005, to July 25, 2006, will not exceed 1,000,000 Common Shares -- approximately 3.04 percent.

Forzani said the purchasing plan has been put in place because it believes that the common shares are undervalued in the market and are a good investment for it at current and recent prices. All common shares purchased will be returned to treasury for cancellation.

The Forzani Group includes Sport Chek, Coast Mountain Sports, Sport Mart and National Sports.

Sportsman's Guide ups guidance

The Sportsman's Guide (Nasdaq: SGDE) said that its net sales and fully diluted earnings per share for the second quarter will be higher than current average estimates and well above the levels reported one year ago. Net sales for the second quarter are now expected to be in range of $63 million to $64 million, compared with net sales of $39.6 million for the same period one year ago and current average estimates of $56 million. Fully diluted earnings per share are now expected to be in a range from $0.28 to $0.30 per share, compared to earnings per share of $0.16 for the same period one year ago and current average estimates of $0.20 per share. The earnings per share numbers for 2004 have been restated to reflect the Sportsman's Guide's recently announced change in accounting policy for certain revenues and adjusted to reflect the 3-for-2 stock split, distributed in April.

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